October 19, 2023
Opportunities and challenges of doing business in Germany
Germany is the only major economy to record negative growth in 2023. The pessimism of our eastern neighbors has seriously increased over the past two years. While Germany was previously at the forefront of economic recovery, it is now more of a drag. The German economy needs a major overhaul, but the plan to achieve it is still overdue.
This year, Germany’s economic growth is -0.6%, compared to +0.6% in the euro zone. The perspectives for Germany are also bleak. The government’s recent recovery measures are largely insufficient. This is according to our recent report about the economy in Germany.
Johan Geeroms, our Director of Risk Underwriting Benelux explains: “There is currently a situation of stagnation. And it is not only explained by inflation and high energy prices. Germany suffers from a series of structural problems. For example, the shortage of qualified workers constitutes a major obstacle. The aging of the population only worsens the problem. Another factor: Germany is not really at the forefront in terms of digitalization”
What are the strengths and weaknesses of the German economy?
Strenghts +
Weaknesses –
Looking at GDP, the share of industry in Germany is much larger than in other major countries, while the service sector lags behind. German industry contributes 18.5% to GDP (9.3% in France and 10.7% in the US) compared to 62% for services (70.3% in France and 77.6% in the US). Germany lags behind in smart digital services that bring a lot of money in other countries.
German exports fell by -11.8% on an annual basis in the first half of 2023. The reopening of the Chinese economy has not been beneficial either. German exports to China fell -7.9% on an annual basis. We expect global demand for major German products such as cars, machinery and chemicals to continue to decline next year, notably due to slowing growth in the US and in China.
High energy costs may have fallen this year, but remain high on average. A large part of German industry is a large energy consumer. These high costs are affecting the health of key German sectors such as metals and chemicals. In these sectors, Germany is leading the way, including in terms of research and innovation. But it is precisely in this area that investors are withdrawing, companies are looking elsewhere and worker insecurity is increasing.
German companies are also suffering from political uncertainty in the country. Public authorities want stricter regulation, for example for internet giants, but also for the development of artificial intelligence. The government is thus fueling the culture of fear, while new technologies offer many opportunities. And these are not captured. Germany needs a clear renovation plan and measures that encourage innovation and investment.
Which products are doing well in Germany?
Exports
- Road vehicles 14.5%
- Electrical machinery, apparatus and appliances 8.7%
- Medical and pharmaceutical products 7.3%
- Other industry machinery and parts 7.3%
- Special machinery 4.3%
Imports
- Road vehicles 9.0%
- Electrical machinery, apparatus and appliances 8.8%
- Medical and pharmaceutical products 5.6%
- Petroleum, petroleum products and related materials 4.5%
- Other industry machinery and parts 4.2%
In many respects, Germans can be considered the masters of planning and organization. Companies have a well-defined and strictly observed hierarchy, with clear responsibilities and distinctions between roles and departments. Meetings follow a formal procedure and punctuality is taken very seriously. Arriving 15 minutes late will be considered a very serious offence.
German businesses are generally quite averse to risk, making the decision-making process slow. You can expect that every detail of your proposal will be carefully and thoroughly examined. Be well prepared and use facts and figures.
Communication style is formal, direct, short and to the point. Emotions and unnecessary content do not have a place in a discussion. If you do not speak German, be careful of automatically addressing a person in English. Germans generally speak very good English but some may well feel offended.
Source: Allianz Trade
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